Amid record financial results, Jabil plans ‘optimized footprint’ in China

Jabil Inc. said it will make more efficient use of its facilities, including its millions of square feet at plants in China, in its 2020 fiscal year.

It’s a big move for Jabil (NYSE: JBL), the largest company headquartered in St. Petersburg, with more than 44 million square feet of manufacturing space in 100 facilities, and nearly 200,000 employees in 29 countries.

Jabil has more capacity than it needs in its mobility business, executives said on a conference call Tuesday morning. Automation and manufacturing process improvements will allow it to “optimize” its manufacturing footprint, executives said.

The move will be largely concentrated around the China footprint, where Jabil currently has about half of its total manufacturing operations. Optimization will cost about $85 million, about $35 million of that in cash, and comes as Jabil reported record financial results for the fourth quarter and full year of fiscal year 2019.

Jabil posted net income of $287.1 million, or $1.81 a share, on revenue of $25.3 billion in the 12 months ended Aug. 31,  compared to net income of $86.3 million, or 49 cents a share, on revenue of $22.1 billion in the previous 12 months. See the full earnings report here.

The company also announced a $600 million stock buyback.

While Jabil historically does not discuss specific customers on its conference calls, a big part of its overall business comes from Apple Inc. (Nasdaq: AAPL), which buys iPhone casings and other components from Jabil. Last year, Apple accounted for 28 percent of Jabil’s total revenue.

Michael Dastoor, CFO, Jabil

Apple just launched the latest version of its iPhone, iPhone 11, and for Jabil, the seasonal launch in its mobility business went well, Michael Dastoor, Jabil’s chief financial officer, said during the conference call.

“The mobility team’s strong execution throughout the year and their focus on supporting our customer and tightly managing costs has contributed to a strong customer relationship. However, we believe the overall mobility supply chain continues to be overcapacitized for current and future volumes,” Dastoor said. “Therefore, we are taking steps to proactively optimize our manufacturing footprint. Reducing our capacity would allow us to more efficiently utilize our fixed assets and normalize our cost structure. As we look forward to fiscal year 2021, we anticipate increased unit volume largely through market share wins. We believe we’ll be able to support higher levels of revenue across a more optimized footprint as a result of our ongoing automation efforts and manufacturing process improvements.”

Mondello credited efficiencies at Jabil’s mobility business.

Mark Mondello, CEO, Jabil

“If we look at the leadership team we have at Jabil Greenpoint today, the work they’ve done in the last 18 months is fascinating to me. The fact that we’re taking out some capacity is no indication about the health of the business or lack of health of the business. Where we’re positioned today is as good as we’ve ever been. Our market share is in good shape. The team has just done a tremendous job of — for lack of better words — getting more water through a smaller pipe. We looked at all of this and said the timing feels pretty good to take out some capacity,” Mondello said.

The move is unrelated to increased tariffs imposed on products produced in China.

“There continues to be a deep-rooted supply chain in China. A lot of our customers when they look at the analysis, they don’t see a great payback in terms of moving their business. There’s also a decent amount of our China revenue consumed in geographies other than the United States,” Mondello said. “With all that said, one of the things that we have taken a hard look at in the last 75 to 100 days is we  do think with all the growth we put into the company, general footprint expansion is essential. So from a [capital expenditure] perspective, we will continue to expand our footprint and a lot of that expansion is outside of China.”

Mondello cited the company’s move into other lines of business, such as health products and packaging, as key to Jabil’s growth.

“But as I have said previously, being diversified for the sake of diversification isn’t all that special. What is impactful to me is the composition and makeup of Jabil’s commercial portfolio, a portfolio comprised of a broad range of exciting products used over a multitude of end markets,” he said.

Jabil also provided financial projections for the next two fiscal years.

In fiscal year 2020, the company expects about $26 billion in revenue, core operating income of $960 million and core earnings per share of $3.45. For fiscal 2021, Jabil is projecting $27 billion in revenue, core operating income of $1.08 billion and core earnings per share of $4.